yndx_Current_Folio_6K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

February 16, 2017

 

YANDEX N.V.

 

Schiphol Boulevard 165

1118 BG Schiphol

Netherlands

+31 (0)20 206 6970

(Address, Including ZIP Code, and Telephone Number,

Including Area Code, of Registrant’s Principal Executive Offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F ☒          Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

 

 


 

Furnished as Exhibit 99.1 to this Report on Form 6-K is a press release of Yandex N.V. dated February 16, 2017, announcing the Company’s fourth quarter and full-year 2016 financial results.

2


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

YANDEX N.V.

 

 

 

 

Date: February 16, 2017

By:

/S/ GREG ABOVSKY

 

Greg Abovsky

 

Chief Financial Officer

 

3


 

INDEX TO EXHIBITS

 

 

 

 

Number

 

Description

 

 

 

99.1

 

Press Release of Yandex N.V. dated Feb. 16, 2017, announcing the Company’s fourth quarter and full-year 2016 financial results.

 

4


yndx_Ex99_1

Exhibit 99.1

Yandex Announces Fourth Quarter and Full-Year 2016 Financial Results

 

MOSCOW, Russia and AMSTERDAM, the Netherlands, Feb. 16, 2017 -- Yandex (NASDAQ: YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its unaudited financial results for the fourth quarter and the full year ended December 31, 2016.

 

Q4 2016 Financial Highlights(1)(2)

 

·

Revenues of RUB 22.1 billion ($364.7 million), up 22% compared with Q4 2015

·

Net income of RUB 1.2 billion ($20.0 million), down 57% compared with Q4 2015; net income margin of 5.5%

·

Adjusted net income of RUB 3.2 billion ($53.6 million), down 11% compared with Q4 2015; adjusted net income margin of 14.7%

·

Adjusted EBITDA of RUB 6.7 billion ($110.5 million), up 2% compared with Q4 2015; adjusted EBITDA margin of 30.3%

·

Cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 63.0 billion ($1,039.1 million) as of December 31, 2016

 

FY 2016 Financial Highlights(1)(2)

 

·

Revenues of RUB 75.9 billion ($1,251.7 million), up 27% compared with FY 2015

·

Net income of RUB 6.8 billion ($111.8 million), down 30% compared with FY 2015; net income margin of 8.9%

·

Adjusted net income of RUB 14.1 billion ($232.7 million), up 16% compared with FY 2015; adjusted net income margin of 18.6%

·

Adjusted EBITDA of RUB 26.1 billion ($430.6 million), up 25% compared with FY 2015; adjusted EBITDA margin of 34.4%

 

Q4 2016 Operational Highlights

 

·

Share of Russian search market, including mobile, averaged 55.4% in Q4 2016 compared to 55.9% in Q3 2016 (according to LiveInternet)

·

Search queries in Russia grew 3% compared with Q4 2015

·

Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 12% compared with Q4 2015

·

Average cost per click grew 8% compared with Q4 2015

·

Yandex.Taxi number of rides grew 401% compared with Q4 2015 

 

“Yandex delivered 27% revenue growth in 2016, driven by improving macro conditions and continued innovation across the technology stack,” said Arkady Volozh, Chief Executive Officer of Yandex. “Our deep experience with AI and machine learning is enabling us to make significant advancements in advertising technologies and continually enhance user experience.”

 

“We were pleased with the strong growth in Q4, especially given tough comparisons with last year,” said Alexander Shulgin, Chief Operating Officer of Yandex. “Yandex.Taxi was a real highlight, growing ride volumes in December 2016 by 452% year-over-year thanks to investments made in geographic expansion and technological infrastructure.  Based on the potential we see in Taxi, E-commerce and Classifieds, we will continue to invest for growth in 2017.”

 

The following table provides a summary of our key consolidated financial results for the three months and twelve months ended December 31, 2015 and 2016:

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Revenues

18,094
22,119
22%
59,792
75,925
27%

Ex-TAC revenues2

14,374
17,845
24%
47,051
60,975
30%

 


 

Income from operations

2,728
3,337
22%
9,593
12,847
34%

Adjusted EBITDA2

6,560
6,701
2%
20,969
26,121
25%

Net income

2,851
1,213

-57%

9,679
6,783

-30%

Adjusted net income2

3,632
3,249

-11%

12,179
14,116
16%

(1)

Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 60.6569 to $1.00, the official exchange rate quoted as of December 31, 2016 by the Central Bank of the Russian Federation.

 

(2)

The following measures presented in this release are “non-GAAP financial measures”: ex-TAC revenues; adjusted EBITDA; adjusted EBITDA margin; adjusted ex-TAC EBITDA margin; adjusted net income; adjusted net income margin and adjusted ex-TAC net income margin. Please see the section headed “Use of Non-GAAP Financial Measures” below for a discussion of how we define these measures, as well as reconciliations at the end of this release of each of these measures to the most directly comparable U.S. GAAP measures.

 

Consolidated revenues breakdown

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Online advertising revenues:

 

 

 

 

 

 

              Yandex websites

12,883
15,487
20%
43,099
52,888
23%

              Advertising network

4,635
5,518
19%
15,111
19,691
30%

Total online advertising revenues

17,518
21,005
20%
58,210
72,579
25%

Other

576
1,114
93%
1,582
3,346
112%

Total revenues

18,094
22,119
22%
59,792
75,925
27%

 

Online advertising revenues grew 20% in Q4 2016 compared with Q4 2015 and continued to determine overall top-line performance, contributing 95% of total revenues. Online advertising revenues include revenues derived from text-based and display advertising on Yandex websites and in our ad network.

 

Online advertising revenues from Yandex websites increased 20% in Q4 2016 compared with Q4 2015 and accounted for 70% of total revenues.

 

Online advertising revenues from our ad network increased 19% in Q4 2016 compared with Q4 2015 and contributed 25% of total revenues, 70 basis points lower than in Q4 2015.

 

Other revenues grew 93% in Q4 2016 compared with Q4 2015, and were mainly driven by growth in Yandex.Taxi revenues.

 

Segment revenues

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Revenues:

 

 

 

 

 

 

Search and Portal

16,673
20,095
21%
55,905
69,256
24%

E-commerce

1,172
1,406
20%
3,400
4,718
39%

Taxi

395
753
91%
984
2,313
135%

Classifieds

261
398
52%
894
1,304
46%

Experiments

142
282
99%
441
830
88%

Eliminations

(549)
(815)
48%
(1,832)
(2,496)
36%

Total revenues

18,094
22,119
22%
59,792
75,925
27%

 

Search and Portal segment includes all our services offered in Russia, Ukraine, Belarus and Kazakhstan, other than those described below;

 


 

E-commerce segment includes our Yandex.Market service;

Taxi segment includes our Yandex.Taxi service;

Classifieds segment includes Auto.ru, Yandex.Realty, Yandex.Jobs and Yandex.Travel;

Experiments segment includes Media Services (including KinoPoisk, Yandex.Music, Yandex.Radio, Yandex.Tickets, Yandex.Afisha and Yandex.TV program), Yandex Data Factory, Discovery services (including Yandex Zen and Yandex Launcher international revenues) and Search and Portal in Turkey.

Eliminations represent the elimination of transaction results between the reportable segments, primarily related to advertising.

 

Consolidated Operating Costs and Expenses

 

Yandex’s operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A), depreciation and amortization expenses (D&A) and goodwill impairment. Apart from D&A and goodwill impairment, each of the above expense categories includes personnel-related costs and expenses, relevant office space rental, and related share-based compensation expense. Increases across all cost categories reflect investments in overall growth. In Q4 2016 Yandex' headcount increased by 362 full-time employees. The total number of full-time employees was 6,271 as of December 31, 2016, an increase of 6% from September 30, 2016, and up 15% from December 31, 2015.

 

Cost of revenues, including traffic acquisition costs (TAC)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

TAC:

 

 

 

 

 

 

Related to the Yandex ad network

2,669
3,101
16%
8,981
11,015
23%

Related to distribution partners

1,051
1,173
12%
3,760
3,935
5%

Total TAC

3,720
4,274
15%
12,741
14,950
17%

Total TAC as a % of total revenues

20.6%
19.3%

 

21.3%
19.7%

 

Other cost of revenues

1,077
1,362
26%
4,069
4,804
18%

Other cost of revenues as a % of revenues

6.0%
6.2%

 

6.8%
6.3%

 

Total cost of revenues

4,797
5,636
17%
16,810
19,754
18%

Total cost of revenues as a % of revenues

26.5%
25.5%

 

28.1%
26.0%

 

 

TAC grew 15% in Q4 2016 compared with Q4 2015 and represented 19.3% of total revenues, 130 basis points lower than in Q4 2015 and flat compared with Q3 2016. The slowdown in the growth of partner TAC continued due to changes in partner revenue mix.

 

Other cost of revenues in Q4 2016 increased 26% compared with Q4 2015.

 

Product development

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Product development

3,606
4,303
19%
13,421
15,832
18%

As a % of revenues

19.9%
19.4%

 

22.5%
20.8%

 

 

Growth in product development expenses in Q4 2016 primarily reflects salary increases in early 2016 and new hires.

 

Sales, general and administrative (SG&A)

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Sales, general and administrative

4,112
6,435
56%
11,601
17,885
54%

 


 

As a % of revenues

22.7%
29.1%

 

19.4%
23.6%

 

 

SG&A expenses grew faster than revenue, increasing by 56% in Q4 2016 compared to Q4 2015 as we continued to invest in advertising and marketing to support our business units, including Taxi, E-commerce and Classifieds, as well as our core products, including search and Yandex Browser.

 

Share-based compensation (SBC) expense

 

SBC expense is included in each of the cost of revenues, product development, and SG&A categories discussed above.

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

SBC expense included in cost of revenues

43
48
12%
168
193
15%

SBC expense included in product development

629
566

-10%

1,860
2,238
20%

SBC expense included in SG&A

221
251
14%
690
991
44%

Total SBC expense

893
865

-3%

2,718
3,422
26%

As a % of revenues

4.9%
3.9%

 

4.5%
4.5%

 

 

Total SBC expense decreased 3% in Q4 2016 compared with Q4 2015. The decrease reflects the appreciation of Russian ruble, since equity-based grants are denominated in USD.

 

Depreciation and amortization (D&A) expense

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Depreciation and amortization

2,275
2,408
6%
7,791
9,607
23%

As a % of revenues

12.6%
10.9%

 

13.0%
12.7%

 

 

D&A expense increased 6% in Q4 2016 compared with Q4 2015, primarily reflecting investments in servers and data centers made in 2015 and 2016, and was partially offset by the currency translation effect related to D&A expense on our data center in Finland which is denominated in Euro.

 

Goodwill impairment

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Goodwill impairment

576

-

n/m

576

-

n/m

As a % of revenues

3.2%

n/m

 

1.0%

n/m

 

 

The goodwill impairment recorded in Q4 2015 of RUB 576 million related to the KinoPoisk acquisition and was a result of the Company’s annual goodwill impairment test reflecting more conservative projected free cash flows from this business.

 

Income from operations

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Income from operations

2,728
3,337
22%
9,593
12,847
34%

 

Income from operations increased 22% in Q4 2016 compared with Q4 2015.

 

 


 

Adjusted EBITDA

 

Consolidated adjusted EBITDA

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Adjusted EBITDA

6,560
6,701
2%
20,969
26,121
25%

 

Adjusted EBITDA increased 2% in Q4 2016 compared with Q4 2015. The growth was impacted by our investments in advertising and marketing, primarily related to Yandex.Taxi, as well as salary increases and new hiring.

 

Adjusted EBITDA by segments

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Adjusted EBITDA:

 

 

 

 

 

 

Search and Portal

7,128
8,123
14%
21,651
28,445
31%

E-commerce

486
329

-32%

1,726
1,420

-18%

Taxi

(19)
(1,300)

n/m

162
(2,086)

n/m

Classifieds

(14)
(97)

n/m

146
(54)

-137%

Experiments

(1,021)
(354)

-65%

(2,716)
(1,604)

-41%

Total adjusted EBITDA

6,560
6,701
2%
20,969
26,121
25%

 

Interest income, net in Q4 2016 was RUB 344 million, down from RUB 489 million in Q4 2015.

 

Foreign exchange loss in Q4 2016 was RUB 1,163 million, compared with a foreign exchange gain of RUB 1,109 million in Q4 2015. This loss reflects the appreciation of the Russian ruble during Q4 2016 from RUB 63.1581 to $1.00 on September 30, 2016, to RUB 60.6569 to $1.00 on December 31, 2016. Yandex's Russian operating subsidiaries' functional currency is the Russian ruble, and therefore changes due to exchange rate fluctuations in the ruble value of these subsidiaries' monetary assets and liabilities that are denominated in other currencies are recognized as foreign exchange gains or losses within Other income/(loss), net line in the condensed consolidated statements of income. Although the U.S. dollar value of Yandex's U.S. dollar-denominated assets and liabilities was not impacted by these currency fluctuations, they resulted in a downward revaluation of the ruble equivalent of these U.S. dollar-denominated monetary assets and liabilities in Q4 2016.

 

Income tax expense for Q4 2016 was RUB 1,314 million, down from RUB 1,503 million in Q4 2015. Our effective tax rate of 52.0% in Q4 2016 was higher than in Q4 2015, primarily due to the effects of certain provisions recognized in Q4 2016 related to the results of prior years’ tax audits. Adjusted for these effects and SBC expense, our effective tax rate for Q4 2016 was 22.2%, and our effective tax rate for full-year 2016 was 23.4%, compared with 22.7% for full year 2015 as adjusted for SBC expense and one-off effects in that year.

 

Net income was RUB 1.2 billion ($20.0 million) in Q4 2016, down 57% compared with Q4 2015, mainly due to foreign exchange loss and an increase in SG&A, which grew faster than total revenue.

 

Adjusted net income in Q4 2016 was RUB 3.2 billion ($53.6 million), a 11% decrease from Q4 2015.

 

Adjusted net income margin was 14.7% in Q4 2016, compared with 20.1% in Q4 2015.

 

As of December 31, 2016, Yandex had cash, cash equivalents, term deposits and short-term investments in debt securities of RUB 63.0 billion ($1,039.1 million).

 

Net cash flow provided by operating activities for Q4 2016 was RUB 5.3 billion ($87.9 million) and capital expenditures were RUB 2.9 billion ($48.2 million), respectively.

 

 


 

During Q4 2016, we repurchased $59.7 million in principal of our 1.125% convertible senior notes due 2018 for approximately $57.4 million.

 

Redeemable noncontrolling interests presented in our consolidated balance sheets relate to the equity incentive arrangements we have made available to the senior employees of the Yandex.Taxi, Classifieds and E-commerce segments, pursuant to which such persons are eligible to acquire depositary receipts, or receive options to acquire depositary receipts, which entitle them to economic interests in the respective business unit subsidiaries.

 

The total number of shares issued and outstanding as of December 31, 2016 was 322,616,941 including 277,579,206 Class A shares, 45,037,734 Class B shares, and one Priority share and excluding 7,439,813 Class A shares held in treasury and all Class C shares outstanding solely as a result of the conversion of Class B shares into Class A shares; all such Class C shares will be cancelled.  

 

There were also employee share options outstanding to purchase up to an additional 2.2 million shares, at a weighted average exercise price of $5.29 per share, substantially all of which were fully vested; equity-settled share appreciation rights (SARs) for 0.2 million shares, at a weighted average measurement price of $30.21, substantially all of which were fully vested; and restricted share units (RSUs) covering 9.1 million shares, of which RSUs to acquire 2.2 million shares were fully vested. Equity awards in respect of business unit subsidiares are described under Redeemable noncontrolling interests above.

 

Please note, that historical information on revenues and adjusted EBITDA of our segments is provided in the supplementary slides accompanying our Q4 2016 earnings release, including quarterly data for the eight quarters from Q1 2015 through Q4 2016 and annual data for the four years from 2013 through 2016.

 

Financial outlook

 

We expect our consolidated revenue to grow in the range of 16% to 19% in the full year 2017 compared with 2016.

 

This outlook reflects our current view, based on the trends that we see at this time, and may change in light of market and economic developments in the business sectors and jurisdictions in which we operate.

 

Conference Call Information

 

Yandex’s management will hold an earnings conference call on February 16, 2017 at 8:00 AM U.S. Eastern Time (4:00 PM Moscow time; 1:00 PM London time).

 

To access the conference call live, please dial:

 

US: +1 877 280 1254

UK/International: +44 20 3427 1906

Russia: 8 800 500 9312

Passcode: 1934764#

 

A replay of the call will be available until February 23, 2017. To access the replay, please dial:

 

US: +1 866 932 5017

UK/International: +44 20 3427 0598

Russia: 810 800 2870 1012

Passcode: 1934764#

 

A live and archived webcast of this conference call will be available at

 

http://edge.media-server.com/m/p/i2nno8oz 

 

 

 


 

ABOUT YANDEX

 

Yandex (NASDAQ:YNDX) is a technology company that builds intelligent products and services powered by machine learning. Our goal is to help consumers and businesses better navigate the online and offline world. Since 1997, we have delivered world-class, locally relevant search and information services. Additionally, we have developed market-leading on-demand transportation services, navigation products, and other mobile applications for millions of consumers across the globe. Yandex, which has 17 offices worldwide, has been listed on the NASDAQ since 2011. 

More information on Yandex can be found at https://yandex.com/company.

 

FORWARD-LOOKING STATEMENTS

 

This press release contains forward-looking statements that involve risks and uncertainties. These include statements regarding our anticipated revenues for full-year 2017. Actual results may differ materially from the results predicted or implied by such statements, and our reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted or implied by such statements include, among others, macroeconomic and geopolitical developments affecting the Russian economy, competitive pressures, changes in advertising patterns, changes in user preferences, changes in the political, legal and/or regulatory environment, technological developments, and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions “Risk Factors” and “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2015, which is on file with the U.S. Securities and Exchange Commission (SEC) and is available on our investor relations website at http://ir.yandex.com/sec.cfm and on the SEC website at www.sec.gov. All information in this release and in the attachments is as of February 16, 2017, and Yandex undertakes no duty to update this information unless required by law.

 

USE OF NON-GAAP FINANCIAL MEASURES

 

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we present the following non-GAAP financial measures: ex-TAC revenues, adjusted EBITDA, adjusted EBITDA margin, adjusted ex-TAC EBITDA margin, adjusted net income, adjusted net income margin and adjusted ex-TAC net income margin. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP financial measures to the nearest comparable U.S. GAAP measures”, included following the accompanying financial tables. We define the various non-GAAP financial measures we use as follows:

 

·

Ex-TAC revenues means U.S. GAAP revenues less total traffic acquisition costs (TAC)

·

Adjusted EBITDA means U.S. GAAP net income plus (1) depreciation and amortization, (2) SBC expense, (3) accrual of expense related to the contingent compensation that may be payable to employees in connection with certain business combinations, (4) goodwill impairment related to KinoPoisk and (5) provision for income taxes, less (A) interest income, net and (B) other income/(loss), net

·

Adjusted EBITDA margin means adjusted EBITDA divided by U.S. GAAP revenues

·

Adjusted ex-TAC EBITDA margin means adjusted EBITDA divided by ex-TAC revenues

·

Adjusted net income means U.S. GAAP net income plus (1) SBC expense adjusted for the income tax reduction attributable to SBC expense, (2) accrual of expense related to the contingent compensation that may be payable to certain employees in connection with certain business combinations, (3) goodwill impairment related to KinoPoisk and (4) amortization of debt discount related to our convertible debt adjusted for the related reduction in income tax;  less (A) foreign exchange gains (plus foreign exchange losses) adjusted for the increase (reduction) in income tax attributable to the foreign exchange gains (losses) and (B) gain from repurchases of our convertible notes adjusted for the related increase in income tax

·

 Adjusted net income margin means adjusted net income divided by U.S. GAAP revenues

·

Adjusted ex-TAC net income margin means adjusted net income divided by ex-TAC revenues

 

These non-GAAP financial measures are used by management for evaluating financial performance as well as decision-making. Management believes that these metrics reflect the organic, core operating performance of the company, and therefore are useful to analysts and investors in providing supplemental information that helps them understand, model and forecast the evolution of our operating business.

 


 

 

Although our management uses these non-GAAP financial measures for operational decision-making and considers these financial measures to be useful for analysts and investors, we recognize that there are a number of limitations related to such measures. In particular, it should be noted that several of these measures exclude some recurring costs, particularly share-based compensation. In addition, the components of the costs that we exclude in our calculation of the measures described above may differ from the components that our peer companies exclude when they report their results of operations.

 

Below we describe why we make particular adjustments to certain U.S. GAAP financial measures:

 

TAC

 

We believe that it may be useful for investors and analysts to review certain measures both in accordance with U.S. GAAP and net of the effect of TAC, which we view as comparable to sales commissions but, unlike sales commissions, are not deducted from U.S. GAAP revenues. By presenting revenue, adjusted EBITDA margin and adjusted net income margin net of TAC, we believe that investors and analysts are able to obtain a clearer picture of our business without the impact of the revenues we share with our partners.

 

SBC

 

SBC is a significant expense item, and an important part of our compensation and incentive programs. As it is a non-cash charge, however, and highly dependent on our share price at the time of equity award grants, we believe that it is useful for investors and analysts to see certain financial measures excluding the impact of these charges in order to obtain a clearer picture of our operating performance.

 

Acquisition-related costs

 

We may incur expenses in connection with acquisitions that are not indicative of our recurring core operating performance. In particular, we are required under U.S. GAAP to accrue as expense the contingent compensation that is payable to certain employees in connection with certain business combinations. We eliminate these acquisition-related expenses from adjusted EBITDA and adjusted net income to provide management and investors a tool for comparing on a period-to-period basis our operating performance in the ordinary course of operations.

 

Foreign exchange gains and losses

 

Because we hold significant assets and liabilities in currencies other than our Russian ruble operating currency, and because foreign exchange fluctuations are outside of our operational control, we believe that it is useful to present adjusted net income and related margin measures excluding these effects, in order to provide greater clarity regarding our operating performance.

 

Amortization of debt discount

 

We also adjust net income for interest expense representing amortization of the debt discount related to our convertible notes issued in Q4 2013 and Q1 2014.We have eliminated this expense from adjusted net income as it is non-cash in nature and is not indicative of our ongoing operating performance.

 

Gain from repurchases of convertible debt

 

Adjusted net income also excludes a gain from the repurchase of $59.7 million in principal of our 1.125% convertible senior notes due 2018 for approximately $57.4 million that we recorded in Q4 2016. We have eliminated this gain from adjusted net income as it is not indicative of our ongoing operating performance.

 

The tables at the end of this release provide detailed reconciliations of each non-GAAP financial measure we use to the most directly comparable U.S. GAAP financial measure.

 

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Balance Sheets

 

(in millions of Russian rubles and U.S. dollars, except share and per share data)

 

 

 

 

 

 

 

 

 

 

As of

 

 

December 31, 

 

December 31, 

 

December 31, 

 

 

2015*

 

2016

 

2016

 

 

RUB

 

RUB

 

$

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

24,238

 

28,232

 

465.4

Term deposits

 

15,150

 

31,769

 

523.7

Investments in debt securities

 

2,915

 

3,033

 

50.0

Accounts receivable, net

 

5,586

 

7,741

 

127.6

Prepaid expenses

 

1,505

 

1,481

 

24.6

Other current assets

 

3,835

 

2,714

 

44.7

Total current assets

 

53,229

 

74,970

 

1,236.0

 

 

 

 

 

 

 

Property and equipment, net

 

20,860

 

18,817

 

310.2

Intangible assets, net

 

5,988

 

5,514

 

90.9

Goodwill

 

8,581

 

8,436

 

139.1

Long-term prepaid expenses

 

1,488

 

1,385

 

22.8

Restricted cash, non-current

 

533

 

442

 

7.3

Term deposits, non-current

 

18,399

 

 -

 

 -

Investments in non-marketable equity securities

 

1,122

 

1,513

 

24.9

Deferred tax assets

 

226

 

662

 

10.9

Other non-current assets

 

1,392

 

2,369

 

39.1

TOTAL ASSETS

 

111,818

 

114,108

 

1,881.2

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

6,994

 

9,532

 

157.2

Taxes payable

 

2,800

 

2,963

 

48.8

Deferred revenue

 

1,875

 

2,127

 

35.1

Total current liabilities

 

11,669

 

14,622

 

241.1

Convertible debt

 

27,374

 

18,750

 

309.1

Deferred tax liabilities

 

1,552

 

1,040

 

17.1

Other accrued liabilities

 

1,126

 

1,104

 

18.2

Total liabilities

 

41,721

 

35,516

 

585.5

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

1,506

 

24.8

Shareholders’ equity:

 

 

 

 

 

 

Priority share: €1.00 par value; 1 share authorized, issued and outstanding

 

 

 

Preference shares: €0.01 par value; 1,000,000,001 shares authorized, nil shares issued and outstanding

 

 

 

Ordinary shares: par value (Class A €0.01, Class B €0.10 and Class C €0.09); shares authorized (Class A: 1,000,000,000, Class B: 61,295,523 and 46,997,887 and Class C: 61,295,523 and 46,997,887); shares issued (Class A: 282,161,148 and 285,019,019, Class B: 47,895,605 and 45,037,734, and Class C: 12,000,000 and 560,235, respectively); shares outstanding (Class A: 271,356,566 and 277,579,206, Class B: 47,895,605 and 45,037,734, and Class C: nil)

 

75

 

284

 

4.7

Treasury shares at cost (Class A: 10,804,582 and 7,439,813, respectively)

 

(12,531)

 

(8,368)

 

(138.0)

Additional paid-in capital

 

17,257

 

16,579

 

273.3

Accumulated other comprehensive income

 

3,099

 

896

 

14.9

Retained earnings

 

62,197

 

67,695

 

1,116.0

Total shareholders’ equity

 

70,097

 

77,086

 

1,270.9

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

111,818

 

114,108

 

1,881.2

 

Derived from audited consolidated financial statements

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Income

 

(in millions of Russian rubles and U.S. dollars, except share and per share data)

 

 

 

 

 

 

 

 

 

 

Three months ended December 31, 

 

 

2015

 

2016

 

2016

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

Revenues

 

18,094

 

22,119

 

364.7

Operating costs and expenses:

 

 

 

 

 

 

Cost of revenues(1)

 

4,797

 

5,636

 

92.9

Product development(1)

 

3,606

 

4,303

 

70.9

Sales, general and administrative(1)

 

4,112

 

6,435

 

106.1

Depreciation and amortization

 

2,275

 

2,408

 

39.7

Goodwill impairment

 

576

 

 -

 

 -

Total operating costs and expenses

 

15,366

 

18,782

 

309.6

Income from operations

 

2,728

 

3,337

 

55.1

Interest income, net

 

489

 

344

 

5.7

Other income/(loss), net

 

1,137

 

(1,154)

 

(19.1)

Net income before income taxes

 

4,354

 

2,527

 

41.7

Provision for income taxes

 

1,503

 

1,314

 

21.7

Net income

 

2,851

 

1,213

 

20.0

Net loss attributable to noncontrolling interests

 

-

 

15

 

0.2

Net income attributable to Yandex N.V.

 

2,851

 

1,228

 

20.2

Net income per Class A and Class B share:

 

 

 

 

 

 

Basic

 

8.93

 

3.81

 

0.06

Diluted

 

8.82

 

3.76

 

0.06

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

Basic

 

319,101,598

 

322,036,640

 

322,036,640

Diluted

 

323,077,175

 

327,013,212

 

327,013,212

 

 

 

 

 

 

 

 


(1)

These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:

(2)

 

(3)

 

(4)

 

(5)

 

(6)

 

(7)

 

 

 

 

 

 

 

 

 

Cost of revenues

 

43

 

48

 

0.8

 

Product development

 

629

 

566

 

9.3

 

Sales, general and administrative

 

221

 

251

 

4.2

 

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Income

 

(in millions of Russian rubles and U.S. dollars, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

Twelve months ended December 31, 

 

 

 

2015*

 

2016

 

2016

 

 

 

RUB

 

RUB

 

$

 

 

 

 

 

 

 

 

 

Revenues

 

59,792

 

75,925

 

1,251.7

 

Operating costs and expenses:

 

 

 

 

 

 

 

Cost of revenues(1)

 

16,810

 

19,754

 

325.7

 

Product development(1)

 

13,421

 

15,832

 

261.0

 

Sales, general and administrative(1)

 

11,601

 

17,885

 

294.8

 

Depreciation and amortization

 

7,791

 

9,607

 

158.4

 

Goodwill impairment

 

576

 

 -

 

 -

 

Total operating costs and expenses

 

50,199

 

63,078

 

1,039.9

 

Income from operations

 

9,593

 

12,847

 

211.8

 

Interest income, net

 

1,744

 

1,655

 

27.3

 

Other income/(loss), net

 

2,259

 

(3,395)

 

(56.0)

 

Net income before income taxes

 

13,596

 

11,107

 

183.1

 

Provision for income taxes

 

3,917

 

4,324

 

71.3

 

Net income

 

9,679

 

6,783

 

111.8

 

Net loss attributable to noncontrolling interests

 

-

 

15

 

0.2

 

Net income attributable to Yandex N.V.

 

9,679

 

6,798

 

112.0

 

Net income per Class A and Class B share:

 

 

 

 

 

 

 

Basic

 

30.39

 

21.19

 

0.35

 

Diluted

 

29.90

 

20.84

 

0.34

 

Weighted average number of Class A and Class B shares outstanding

 

 

 

 

 

 

 

Basic

 

318,541,887

 

320,788,967

 

320,788,967

 

Diluted

 

323,713,437

 

326,136,949

 

326,136,949

 

 

 

 

 

 

 

 

 

 


(1)

These balances exclude depreciation and amortization expenses, which are presented separately, and include share-based compensation expenses of:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

168

 

193

 

3.2

Product development

 

1,860

 

2,238

 

36.9

Sales, general and administrative

 

690

 

991

 

16.3

 

 

* Derived from audited financial statements 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

(in millions of Russian rubles and U.S. dollars)

 

 

 

 

 

 

 

 

 

 

Three months ended December 31, 

 

 

2015

 

2016

 

2016

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

2,851

 

1,213

 

20.0

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

1,800

 

1,913

 

31.5

Amortization of intangible assets

 

475

 

495

 

8.2

Amortization of debt discount and issuance costs

 

235

 

201

 

3.3

Share-based compensation expense

 

893

 

865

 

14.3

Deferred income taxes

 

(87)

 

(673)

 

(11.1)

Foreign exchange (gains)/losses

 

(1,109)

 

1,163

 

19.2

Goodwill impairment

 

576

 

 -

 

 -

Gain from repurchases of convertible debt

 

(67)

 

 -

 

 -

Other

 

13

 

107

 

1.8

Changes in operating assets and liabilities excluding the effect of acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

(900)

 

(1,513)

 

(24.9)

Prepaid expenses and other assets

 

106

 

(545)

 

(9.0)

Accounts payable and accrued liabilities

 

499

 

1,798

 

29.6

Deferred revenue

 

215

 

306

 

5.0

Net cash provided by operating activities

 

5,500

 

5,330

 

87.9

CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(1,659)

 

(2,923)

 

(48.2)

Proceeds from sale of property and equipment

 

60

 

19

 

0.3

Acquisitions of businesses, net of cash acquired

 

(212)

 

 -

 

 -

Investments in non-marketable equity securities

 

(35)

 

(130)

 

(2.1)

Investments in debt securities

 

(2,564)

 

(1,253)

 

(20.7)

Investments in term deposits

 

(15,150)

 

(33,034)

 

(544.6)

Maturities of term deposits

 

20,044

 

12,632

 

208.3

Loans granted

 

(38)

 

(277)

 

(4.6)

Net cash provided by/(used in) investing activities

 

446

 

(24,966)

 

(411.6)

CASH FLOWS USED IN FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

29

 

100

 

1.6

Repurchases of convertible debt

 

(1,187)

 

(3,318)

 

(54.7)

Payment for contingent consideration

 

(35)

 

(87)

 

(1.4)

Other financing activities

 

29

 

114

 

1.9

Net cash used in financing activities

 

(1,164)

 

(3,191)

 

(52.6)

Effect of exchange rate changes on cash and cash equivalents

 

1,417

 

(636)

 

(10.6)

Net change in cash and cash equivalents

 

6,199

 

(23,463)

 

(386.9)

Cash and cash equivalents at beginning of period

 

18,039

 

51,695

 

852.3

Cash and cash equivalents at end of period

 

24,238

 

28,232

 

465.4

 

 


 

YANDEX N.V.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

(in millions of Russian rubles and U.S. dollars)

 

 

 

 

 

 

 

 

 

 

Twelve months ended December 31, 

 

 

2015*

 

2016

 

2016

 

 

RUB

 

RUB

 

$

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

9,679

 

6,783

 

111.8

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation of property and equipment

 

6,197

 

7,655

 

126.2

Amortization of intangible assets

 

1,594

 

1,952

 

32.2

Amortization of debt discount and issuance costs

 

967

 

911

 

15.0

Share-based compensation expense

 

2,718

 

3,422

 

56.4

Deferred income taxes

 

(188)

 

(864)

 

(14.2)

Foreign exchange (gains)/losses

 

(1,903)

 

3,834

 

63.2

Gain from sale of equity securities

 

 -

 

(157)

 

(2.6)

Goodwill impairment

 

576

 

 -

 

 -

Gain from repurchases of convertible debt

 

(310)

 

(53)

 

(0.9)

Other

 

(83)

 

(40)

 

(0.6)

Changes in operating assets and liabilities excluding the effect of acquisitions:

 

 

 

 

 

 

Accounts receivable, net

 

(1,763)

 

(2,385)

 

(39.3)

Prepaid expenses and other assets

 

888

 

276

 

4.6

Accounts payable and accrued liabilities

 

1,160

 

3,817

 

62.9

Deferred revenue

 

44

 

298

 

4.9

Net cash provided by operating activities

 

19,576

 

25,449

 

419.6

CASH FLOWS USED IN INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of property and equipment and intangible assets

 

(13,045)

 

(9,625)

 

(158.7)

Proceeds from sale of property and equipment

 

95

 

177

 

2.9

Acquisitions of businesses, net of cash acquired

 

(398)

 

 -

 

 -

Investments in non-marketable equity securities

 

(110)

 

(491)

 

(8.1)

Investments in debt securities

 

(2,564)

 

(3,159)

 

(52.1)

Proceeds from maturity of debt securities

 

3,426

 

2,525

 

41.6

Investments in term deposits

 

(41,760)

 

(70,430)

 

(1,161.1)

Maturities of term deposits

 

42,682

 

68,447

 

1,128.4

Loans granted

 

(60)

 

(550)

 

(9.0)

Escrow cash deposit

 

58

 

 -

 

 -

Net cash used in investing activities

 

(11,676)

 

(13,106)

 

(216.1)

CASH FLOWS USED IN FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from exercise of share options

 

168

 

431

 

7.1

Repurchases of convertible debt

 

(6,096)

 

(5,397)

 

(89.0)

Payment for contingent consideration

 

(124)

 

(152)

 

(2.5)

Other financing activities

 

29

 

97

 

1.6

Net cash used in financing activities

 

(6,023)

 

(5,021)

 

(82.8)

Effect of exchange rate changes on cash and cash equivalents

 

4,716

 

(3,328)

 

(54.9)

Net change in cash and cash equivalents

 

6,593

 

3,994

 

65.8

Cash and cash equivalents at beginning of period

 

17,645

 

24,238

 

399.6

Cash and cash equivalents at end of period

 

24,238

 

28,232

 

465.4

 

* Derived from audited financial statements

 


 

YANDEX N.V.

 

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

TO THE NEAREST COMPARABLE U.S. GAAP MEASURES

 

Reconciliation of Ex-TAC Revenues to U.S. GAAP Revenues

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Total revenues

18,094
22,119
22%
59,792
75,925
27%

Less: traffic acquisition costs (TAC)

3,720
4,274
15%
12,741
14,950
17%

Ex-TAC revenues

14,374
17,845
24%
47,051
60,975
30%

 

Reconciliation of Adjusted EBITDA to U.S. GAAP Net Income

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Net income

2,851
1,213

-57%

9,679
6,783

-30%

Add: depreciation and amortization

2,275
2,408
6%
7,791
9,607
23%

Add: share-based compensation expense

893
865

-3%

2,718
3,422
26%

Add: compensation expense related to contingent consideration

88
91
3%
291
245

-16%

Add: goodwill impairment

576

 -

-100%

576

 -

-100%

Less: interest income, net

(489)
(344)

-30%

(1,744)
(1,655)

-5%

Less: other (income)/loss, net

(1,137)
1,154

n/m

(2,259)
3,395

n/m

Add: provision for income taxes

1,503
1,314

-13%

3,917
4,324
10%

Adjusted EBITDA

6,560
6,701
2%
20,969
26,121
25%

 

Reconciliation of Adjusted Net Income to U.S. GAAP Net Income

 

 

 

 

 

 

 

 

In RUB millions

Three months ended December 31, 

Twelve months ended December 31, 

 

2015

2016

Change

2015

2016

Change

Net income

2,851
1,213

-57%

9,679
6,783

-30%

Add: SBC expense

893
865

-3%

2,718
3,422
26%

Less: reduction in income tax attributable to SBC expense

(11)

 -

-100%

(41)
(36)

-12%

Add: compensation expense related to contingent consideration

88
91
3%
291
245

-16%

Less: foreign exchange (gains)/losses

(1,109)
1,163

n/m

(1,903)
3,834

n/m

Add: increase/(decrease) in income tax attributable to foreign exchange gains/(losses)

216
(234)

n/m

355
(775)

n/m

Add: goodwill impairment

576

 -

-100%

576

 -

-100%

Less: gain from repurchases of convertible debt

(67)

 -

-100%

(310)
(53)

-83%

Add: increase in income tax attributable to gain from repurchases of convertible debt

16

 -

-100%

77
13

-83%

Add: amortization of debt discount

235
201

-14%

967
911

-6%

Less: reduction in income tax attributable to amortization of debt discount

(56)
(50)

-11%

(230)
(228)

-1%

Adjusted net income

3,632
3,249

-11%

12,179
14,116
16%

 

 


 

 

Reconciliation of Adjusted EBITDA Margin and Adjusted Ex-TAC EBITDA Margin to U.S. GAAP Net Income Margin

 

 

 

 

 

 

 

In RUB millions

 

 

 

 

 

 

U.S. GAAP Actual Net Income

Net Income Margin (1)

Adjustment (2)

Adjusted EBITDA

Adjusted EBITDA Margin (3)

Adjusted Ex-TAC EBITDA Margin (4)

Three months ended December 31, 2016

1,213
5.5%
5,488
6,701
30.3%
37.6%

Twelve months ended December 31, 2016

6,783
8.9%
19,338
26,121
34.4%
42.8%

(1)

Net income margin is defined as net income divided by total revenues.

(2)

Adjusted to eliminate depreciation and amortization expense, SBC expense, expense related to contingent compensation, interest income, net, other loss, net, and provision for income taxes. For a reconciliation of adjusted EBITDA to net income, please see the table above.

(3)

Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenues.

(4)

Adjusted ex-TAC EBITDA margin is defined as adjusted EBITDA divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to U.S. GAAP revenues, please see the table above.

 

Reconciliation of Adjusted Net Income Margin and Adjusted Ex-TAC Net Income Margin to U.S. GAAP Net Income Margin

 

 

 

 

 

 

 

 

In RUB millions

 

 

 

 

 

 

U.S. GAAP Actual Net Income

Net Income Margin (1)

Adjustment (2)

Adjusted Net Income

Adjusted Net Income Margin (3)

Adjusted Ex-TAC Net Income Margin (4)

Three months ended December 31, 2016

1,213
5.5%
2,036
3,249
14.7%
18.2%

Twelve months ended December 31, 2016

6,783
8.9%
7,333
14,116
18.6%
23.2%

(1)

Net income margin is defined as net income divided by total revenues.

(2)

Adjusted to eliminate SBC expense (as adjusted for the income tax reduction attributable to SBC expense), expense related to contingent compensation, foreign exchange losses (as adjusted for the decrease in income tax attributable to the losses), gain from repurchases of convertible debt (as adjusted for the increase in income tax attributable to the gain) and amortization of debt discount (as adjusted for the reduction in income tax attributable to the expense). For a reconciliation of adjusted net income to net income, please see the table above.

(3)

Adjusted net income margin is defined as adjusted net income divided by total revenues.

(4)

Adjusted ex-TAC net income margin is defined as adjusted net income divided by ex-TAC revenues. For a reconciliation of ex-TAC revenues to U.S. GAAP revenues, please see the table above.

 

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